Reply to: ContractorMoney 'FLEXIMORTGAGE' OFFER: Tax efficient Offset mortgages for contractors

[barrydidit]

It also says on their site now that "you must have a suitable repayment plan". Is that something new maybe?

The LBG brands have this now for interest only stuff - so from that point of view, it's probably BoE or FSA mandated. In my experience, the previous "yeah, i'll sell my BTL investments to cover the capital" was no longer enough - I had to explain which properties and what lending was secured on these etc. You could use all sorts of things though - pensions etc

I suppose it's all part of the Banks a) looking after their own investments and b) ensuring they can demonstrate due diligence in not lending recklessly and risk another miss selling reclaim feast.

[d000hg]

Joanna do you mind if I ask what kind of % you're paying, and any other key numbers you're comfortable sharing? It sounds like a great product with the level of flexibility you describe.

[JoannaUCF]

That sounds like a winner. Obviously requires discipline to make sure you don't spend it!

It also says on their site now that "you must have a suitable repayment plan". Is that something new maybe?

I've had my offset with them for more years than I care to remember! I've just renewed it in the last few weeks - I must admit the credit process that they took me through was longer and much more thorough than it had ever been before, but the same general rules applied once it was agreed. They did say I needed to have a suitable repayment plan in place, and they asked me what it was, but they don't insist on endowments or anything. I got the impression that the 'you must have...' statement was more from a compliance perspective, that they've made it clear that you're expected to be able to repay the mortgage by the end of the term.

[Moscow Mule]

My offset is with first direct - you're right that they don't quote repayment figures, and they have to set them up interest only I think, however the repayment facility is there in the mortgage itself. It's set up as a monthly standing order which they will set to whatever you want your monthly repayment to be. I can amend this figure whenever I want, and make overpayments if I want, or crash it right back to the bare minimum if i want - no charges and no maximum overpayment figure per month. I love it because it's so flexible.

That sounds like a winner. Obviously requires discipline to make sure you don't spend it!

It also says on their site now that "you must have a suitable repayment plan". Is that something new maybe?

[northernladuk]

My offset is with first direct - you're right that they don't quote repayment figures, and they have to set them up interest only I think, however the repayment facility is there in the mortgage itself. It's set up as a monthly standing order which they will set to whatever you want your monthly repayment to be. I can amend this figure whenever I want, and make overpayments if I want, or crash it right back to the bare minimum if i want - no charges and no maximum overpayment figure per month. I love it because it's so flexible.

Not many of them about now. I have the same with Birmingham Midshires buy struggled to find another one like it in the last year or two.

[JoannaUCF]

Looking a First Direct, they don't offer an offset with repayment - it's interest only. Which means you have to have the faff of an endowment or similar.

My offset is with first direct - you're right that they don't quote repayment figures, and they have to set them up interest only I think, however the repayment facility is there in the mortgage itself. It's set up as a monthly standing order which they will set to whatever you want your monthly repayment to be. I can amend this figure whenever I want, and make overpayments if I want, or crash it right back to the bare minimum if i want - no charges and no maximum overpayment figure per month. I love it because it's so flexible.

[northernladuk]

Thanks NL, I shall have a play.

When we're talking about offset being more tax-efficient due to no tax paid on savings interest, presumably that would only be the case for savings you have on top of ISAs? So if you end up with more left over each year than can fit into ISAs, an offset makes sense... if you fill up ISAs and leave the rest in the company, a regular mortgage is the route to go.

Yep, or that the mortgage works out better than your ISA. There are some horrible ISA's around at the moment so have to balance the rate of them against the rate of your mortgage I guess. Looking at some of the ISA's on the 'top 10' lists from the money sites the offset option looks a lot more appealing plus the flexibility of being able to use your money should you need it (comparing against tie in ISA's obviously). Just have to do your homework and also your investing style. I like the idea of seeing my mortgage timeline reduce even though it has the same affect as watching your ISA grow and then pay the mortgage off with the ISA. Get to the same ends, just what makes you feel better I guess.

There is always the situation where the banks up the mortgage rates even though the base rate hasn't changed which then means your ISA is not as good an investment. Need a crystal ball though as god knows how things will change at the moment.

[d000hg]

Thanks NL, I shall have a play.

When we're talking about offset being more tax-efficient due to no tax paid on savings interest, presumably that would only be the case for savings you have on top of ISAs? So if you end up with more left over each year than can fit into ISAs, an offset makes sense... if you fill up ISAs and leave the rest in the company, a regular mortgage is the route to go.

[northernladuk]

Bah, forgot the offset calculator link...

Here you go. Quite interesting when you start playing with the numbers...

NatWest Offset Calculator

[Olly]

Looking a First Direct, they don't offer an offset with repayment - it's interest only.

nah, they do
For me what made First Direct the cheapest was the no fee bit since I plan to offset virtually all the loan

[No2politics]

ContractorMoney 'FLEXIMORTGAGE' OFFER: Tax efficient Offset mortgages for contractors

The obvious things to watch is you may not keep that lump sum in for the entire duration of the mortgage, and you would never normally keep a mortgage for the entire duration so equivalents for the lifetime can be misleading... but anyway, shows that a bit of spare cash can help.

.

Absolutely, I don't think it's right to compare across the lifetime of the mortgage. To compare mortgages It helps to assume that at the end of the mortgage period you will look for a new deal, rather than revert into the standard rate. So u only compare deals over the relevant mortgage periods, essentially ignoring what the mortgage will revert to.

Naturally it is much easier to compare two mortgages of the same period. Ie a 2yr offset vs 2 year fix. (Note in that spreadsheet it is possible to include how the cash in your offset account will decrease over time, using the "mortgage 1 monthly repayment" worksheet.)

When comparing a 2 year and a 3 year you have to include the fees in your comparison. Over a six year period you would pay fees 3 times for a 2yr and only twice for a 3yr.

Should I have a fee free mortgage with a higher interest rate or a higher fee with a lower interest rate? Many people compare the monthly repayment and use that to see which comes out cheaper. However that is only part of it. The other thing u should ask is how much capital will I have outstanding at the end of the period? I metric that I use, is per pound of monthly repayment how much does my capital decrease by? To compare deals on a truly like for like basis you want to ensure that the monthly repayments are the same (tweak the over payments to do this).

That spreadsheet allows you to add in changes in interest rates over time, in case you want to do some different scenarios.

When I was getting my mortgage last year I was trying to get around my head around how to compare mortgages. When I mentioned the above to the broker I spoke with, his eyes glazed over. Didn't have a clue, which probably goes for 99.9 percent of people who have ever bought a mortgage.

Make u think that if so few people can get to the bottom of a mortgage comparison, how many people truly understand all the complex financial products that are traded today.

[Moscow Mule]

Looking a First Direct, they don't offer an offset with repayment - it's interest only. Which means you have to have the faff of an endowment or similar.

I'm with the woolwich at the moment, and I'll probably stick with them when our fix runs out in the summer.

[northernladuk]

I've seen First Direct mentioned a few times, what is the deal they have which is so good? CM were able to find 3.2% fixed for 2 years, which doesn't seem too bad.

Have a look at an offset calculator like this. It gives you an 'equivalent rate' to demonstrate what rate you need on a normal account to match the situation you are in. I put in the value of my mortgage at 4% rate along with a £20k lump some offset and it comes out an an equivalent of 3.3%. If I then put a £100 a month saving in it drops to 2.9%

http://www.natwest.com/personal/mort...fset-calc.ashx

The obvious things to watch is you may not keep that lump sum in for the entire duration of the mortgage, and you would never normally keep a mortgage for the entire duration so equivalents for the lifetime can be misleading... but anyway, shows that a bit of spare cash can help.

Didn't reduce the monthly cost of the mortgage but years start dropping off the end.

[d000hg]

I've seen First Direct mentioned a few times, what is the deal they have which is so good? CM were able to find 3.2% fixed for 2 years, which doesn't seem too bad.

[No2politics]

ContractorMoney 'FLEXIMORTGAGE' OFFER: Tax efficient Offset mortgages for contractors

I found this spreadsheet invaluable when comparing mortgages
http://forums.moneysavingexpert.com/....php?t=1157173

Helps u compare mortgages with different repayment periods and fee structures.